Washington, DC CNN  — 

New home sales dropped in August from the month before, as mortgage rates topped 7% and rose to the highest levels in more than 20 years.

Sales of newly constructed homes dropped 8.7% in August to a seasonally adjusted annual rate of 675,000 from a revised rate of 739,000 in July, according to a joint report from the US Department of Housing and Urban Development and the Census Bureau. Sales were up 5.8% from a year ago.

New construction has been attracting determined buyers frustrated by the historically low supply of existing homes. But, affordability concerns remain.

The median price of a new construction home was $430,300 in August.

Homeowners with mortgage rates of 3% or 4% are reluctant to sell and buy another home at a much higher rate. In August, rates topped 7% and have lingered there as the Federal Reserve continues to address inflation.

“Affordability remains a challenge as the tight housing market keeps prices elevated, and conditions are not likely to improve until interest rates or pricing comes down,” said Kelly Mangold of RCLCO Real Estate Consulting.

This story is developing and will be updated.